Bank of Nova Scotia’s move to boost its wealth-management business with the acquisition of Jarislowsky Fraser Ltd. is a credit positive for the Toronto-based bank, says a report from Moody’s Investors Service.
Scotiabank’s deal for Montreal-based Jarislowsky Fraser will enhance the bank’s already-strong domestic franchise, “by extending the bank’s presence in the lucrative high net-worth and institutional market,” the report says.
The combination will make Scotiabank Canada’s third-largest active asset manager with $166 billion in assets under management.
“The transaction will increase [Scotia’s] wealth-management earnings, an area in which it has lagged the other big five Canadian banks,” the report says.
“The transaction leverages [Scotia’s] existing distribution strengths, provides economies of scale and extends an existing core competency of the bank,” it adds.
Additionally, the $950 million purchase is being financed by the acquisition of new shares by the bank, the report explains, with the bank planning to repurchase a similar amount of shares over the coming 18 months in order to offset the dilution created by the transaction.
“We see the upfront issuance of capital as credit positive. The planned repurchase of stock could be halted in response to an unknown negative event,” the report says.
“[Scotiabank’s] challenge will be to cross-sell its other products to its newly acquired clients, the report underscores. “This is a difficult goal to achieve and requires close co-ordination between bankers and wealth-management specialists, and the proper management of incentives.”